IFAD-supported APRACA Regional Programme
of
Accelerating the Financial Empowerment of Poor Rural Communities
in Asia and the Pacific through Rural Finance Innovations

(FinPower Programme) 

The International Fund for Agricultural Development has provided APRACA with a five–year technical and financial assistance grant covering the period January 11, 2007 to March 31, 2012, under the IFAD-supported APRACA Regional Programme of Accelerating the Financial Empowerment of Poor Rural Communities in Asia and the Pacific through Rural Finance Innovations  or dubbed as the APRACA FinPower Programme.  

I. Background

1. The goal of the International Fund for Agricultural Development (IFAD) is to reduce rural poverty through sustainable improvements in household food security and incomes. In order to contribute to this goal, one of IFAD’s strategic objectives is to provide improved financial and related non-financial services in rural areas. In fact, two-thirds of the Fund’s current projects have a rural finance component and approximately one-fifth of the Fund’s resources are dedicated to rural finance. Of the USD 822 million invested by IFAD on rural finance worldwide between 1996 and 2005, 41.4% was in Asia and the Pacific region.
    
2. Rural finance interventions provide small-scale credit and other financial services to poor households and very small informal businesses. They provide a mechanism for the poor to smooth the effects of income shocks on consumption, find safe and affordable repositories for their savings, take advantage of profitable investment opportunities, and insure against risk. Microfinance is firmly established as a cost-effective approach for poverty reduction, including rural poverty. Experience worldwide shows that when microfinance services reach women, the benefits are particularly sustainable. Savings rates are higher; group-life is more intensive; repayment rates are remarkable; enterprise growth and graduation is stronger; and there are measurable improvements in child nutrition and education, family health, household sanitation and shelter, and general household welfare.
   
3. The expansion of financial services to poor households in developing countries is hindered by many obstacles. These include ineffective enforcement of laws, lack of usable collateral, poor communication infrastructure, and weak prudential oversight over saving institutions. To circumvent these problems, microfinance institutions have developed a number of innovative techniques. For example, in microcredit, repeated lending breaks down loans into small instalments with a frequent repayment schedule to help establish the trustworthiness of the borrower. Progressive lending increases loan disbursements gradually over time, so that failure to repay an early loan causes borrowers to lose a larger loan in the future, enhancing their incentives to repay. Another mechanism is joint liability, whereby members of a lending group take turns at receiving loans, and are jointly responsible if a group member fails to repay.
   
   
4. Despite these innovations, the coverage of microfinance and rural finance has been limited. Some estimates indicate that though the potential market for microfinance services worldwide may range between 400 and 500 million people, less than one-tenth of them were served by microfinance institutions in 2002. A major challenge therefore is to widen access to financial services of the rural poor—and especially women, a highly disadvantaged and deprived group—to meet their diverse needs (e.g., savings, credit, insurance against unexpected events) through flexible products at competitive prices.
   
5. Based on its field experience and review of major challenges of the rural finance sector, IFAD prepared its Rural Finance Policy in 2000, which describes IFAD’s approach to rural finance, sets the standards for designing and implementing projects, and offers guidance to IFAD staff and partner institutions. The Policy defines IFAD’s goal in rural finance as aiming for sustainable access of the rural poor to financial services, to be enhanced by institutional diversity and a supportive rural financial infrastructure. The Policy defines four focus areas:

• Building sustainable Rural Finance  Institutions with outreach to the rural poor;
• Fostering stakeholder participation, including the poor, in the development of rural finance;
• Building a diversified rural financial infrastructure; and,
• Promoting a conducive policy and regulatory environment.
  

II. The IFAD-APRACA Engagement

6. Since 1977, APRACA has aspired to work for rural growth and development, with priority emphasis on the uplift of rural poor. It has pursued the promotion of efficient and effective rural financial systems and broadened access to rural financial services. It established among its members, a machinery for systematic interchange of information on sustainable rural and agricultural financial services, encouraged inter-country studies, and provided on matters of common interest in the field of rural finance, and provided training, consultancy, research and publications services.
   
   
7. APRACA, with its wide network of member rural financial institutions and central banks, is a viable and strong partner for IFAD to engage with senior policy makers and central banks on key policy issues. IFAD had collaborated with APRACA between 1996 and 2001 under the APRACA Microserv programme, implemented with IFAD’s funding support, wherein replicable rural finance models were disseminated to member institutions and to a wider audience. The Microserv programme showed that the replicability of innovative models was further enhanced when conducted through an organization with an existing, wide geographic network such as APRACA, thereby yielding more cost-effective results, broader geographic reach, and assured project continuity.
   
   
8. A client-friendly and conducive policy environment is a prerequisite for the development of viable, sound financial institutions that serve the demands the rural poor. A conducive policy environment and an appropriate regulatory framework imply macroeconomic stability, deregulated interest rates, autonomous financial institutions and regulatory authorities, functioning prudential regulation, and due legal process. A number of Asian countries (e.g., India, Indonesia, Philippines) have undertaken enabling rural finance policy reforms which provide important lessons for other countries in the region. This programme will engage national authorities in dialogues to accelerate the creation of conducive policy environment and regulatory framework within their respective countries.
   
   
9. The programme will further strengthen APRACA’s pilot testing programmes and lend support to Asian countries to promote reforms based on poverty outreach and sustainable financial practices. Such programmes shall include targeting mechanisms and linkages to reach the rural poor and reviews of product design, staffing, and outreach mechanisms. Donors such as GTZ had been actively involved with APRACA in the area of linkage banking for more than a decade. The APRACA-GTZ collaboration results offer instructive lessons, especially considering the impressive track record of some of APRACA’s members (BRI in Indonesia and BAAC in Thailand, NABARD in India, among others). This and other learnings from the IFAD country projects and from APRACA members’ projects shall form part  of a solid basis of the IFAD-APRACA re-engagement.
   
   
10. Replicable rural finance models such as wholesale financing, efficient branch banking, grassroots linkages, barefoot banking, community assets building, and the credit plus approach and other emerging approaches and financial service delivery systems shall be further disseminated.
    
11. IFAD and APRACA have promoted a number of innovative rural finance approaches in Asia, including self-help groups (SHGs), their associations and federations, and SHG-linkage banking models. Under this programme, IFAD will closely collaborate with APRACA to expand the discussion, analysis, and replication successful innovative approaches. IFAD researches and studies shall be discussed through APRACA forums and other modes of dissemination to assess how policy implications may be replicated in other countries. Similarly, one major challenge in several countries in Asia is to improve the linkage between grassroots structures (such as SHGs and community-driven rural finance models) and the formal financial sector. Successful approaches tested in the region can be systematically shared with APRACA, replicated, and then up-scaled among members.  
    
12. Implementation is expected to contribute significantly to establishing a conducive policy environment in Asian countries for the development of sustainable financial services in rural areas, which will help in rural poverty reduction. It will also greatly help in the replication and scaling up of successful cases of rural finance innovations to a wider geographic area by promoting sharing of successful experiences among Asian countries. At the same time, it will contribute directly to the achievement of the first strategic objective of IFAD’s policy for grant financing by replicating successful innovations in the field of rural/micro finance. It will also build the capacity of APRACA, thus contributing to the second strategic objective of the policy. Under the programme, other members of APRACA may embark on such reforms, which may be helped by an active policy dialogue with their governments. This could have a major impact on promoting access of the rural poor to credit, savings, insurance, remittances services in Asia.
    

III. Goal and Objectives

Goal

13. The goal of the five-year FinPower programme is to promote the financial empowerment of the rural poor in Asia-Pacific countries through policy dialogue, innovative pilot programmes, and knowledge-sharing among actors in the rural finance sector. The activities undertaken by the programme will further consolidate rural finance knowledge and replicate successful approaches among beneficiaries in the Asia-Pacific region.

Objectives

14. The three objectives of the FinPower programme are to:

• Foster an enabling, pro-poor and client-friendly policy environment and regulatory framework for sustainable rural financial systems;
• Encourage innovative approaches to rural finance through the adoption of reforms and improvement of rural finance mechanisms that empower the rural poor; and,
• Extract lessons from the wealth of rural finance innovations promoted by IFAD-supported projects and APRACA initiatives to promote information sharing and replicate successful approaches in the region.
  

15. These three objectives correspond to the following three central components of the FinPower Programme:

• Component 1 : Participatory Dialogue and Policy Forums
• Component 2 : Pilot Programmes, Exposure Visits and Documentation
• Component 3 : Training, Regional Study and Sharing of Innovative Practices
  

Component 1: Participatory Dialogue and Policy Forums

Output 1. Participatory dialogues and decision-making involving all key rural finance actors 

Output 2. Client-friendly policy environment and a regulatory framework conducive to sustainable, pro-poor rural financial systems, as enacted by the appropriate national authorities in the region. 

Component 2: Pilot Programmes, Exposure Visits and Documentation 

Output 3. Improved design and delivery of relevant, demand-driven financial services by agriculture and rural development banks. 

Output 4: Stronger linkages between and across institutional types. 

Component 3: Training, Regional Study and Sharing of Innovative Practices 

Output 5. Regional studies focused on best practices and innovation in IFAD-supported projects and APRACA RFIs and projects. 

Output 6. Effective training curricula, as well as multimedia didactic and information materials. 

Output 7: Catalytic regional forum that promotes exchange of information and experiences and promote the effective use of technology in building inclusive financial systems in the region. 

IV. Implementation Arrangements and Methodology

   Implementing Agency

16. APRACA is the implementing agency for this Programme.

  Programme Steering Committee

17. A Programme Steering Committee (PSC), consisting of a representative from IFAD, the incumbent APRACA Chairperson, the incumbent Vice Chairperson and one other EXCOM member  chosen from among the EXCOM  as well as the incumbent Secretary General, provides overall guidance to the Programme and to periodically review and approve the annual work plan and budget. The APRACA Chairperson acts as the Chairperson of the Programme Steering Committee. The Programme steering Committee is set to meet twice during the programme year.

  Programme Management Unit

18. The Programme Management Unit (PMU) is composed of the APRACA Secretary General, who acst as the FinPower Regional Programme Manager  and who is responsible for the implementation of the Programme, and a Communications Specialist who works on the continuous upgrade of  the APRACA website and assist in the production of multimedia tools.
19. The local APRACA Secretariat staff offers additional administrative and secretarial support. The APRACA accountant shall also act as the FinPower Programme accountant. The Bank for Agriculture and Agricultural Cooperatives provides auditing services to the Programme.